A strong future for retail property

A strong future for retail propertyThe Australian retail sector has faced economic downturns, new retail competitors and the rise of online shopping, but technological advancements and changing consumer preferences are creating opportunities, says TH Real Estate’s Stephen Philp (pictured).The retail property sector is one we spend a lot of time analysing at TH Real Estate and we are confident that demand for well-located and well-managed retail assets will continue to be strong through 2015 and beyond.Undoubtedly, e-commerce has shifted buyer trends and preferences, with retailers in generic merchandise categories like books, music and electronics under pressure from online retailing. However, shoppers are still looking for that tangible experience when it comes to purchasing items such as clothing and home furnishings. Marketwatch reports that, online sales figures are likely to be adversely impacted by a weaker currency and customer returns that average around 10 per cent for clothing items purchased online.The key is adapting to the changing market, and one component of that is technology. While technology may be perceived as a threat, it can be utilised by retail developers and investors in micro monitoring shopper habits and matching with retail mix. To differentiate themselves, retail centres need to offer a level of convenience and experience shopping that cannot be replicated purely online. Investors need to work their assets to ensure they are the destinations customers will go out of their way to visit and where retailers will compete to secure representation. Shopping centres also play an important community function offering numerous services from finance, health and welfare to town hall functions and events.The good news is that the growth in multi-channel retailing is generating exciting new retail formats, and those that embrace the digital future are well placed for success. The retail centres of the future should be more innovative in design, interaction and service supporting enhanced customer experience. The Australian retail property sector is delivering relatively consistent and favourable returns to investors. According to a recent report by Colliers International, returns for Australian retail property are at their highest level since June 2011. Meanwhile, despite some retail segments finding it tough, many businesses in this sector are reporting strong sales results. Stronger sales are currently enabling positive speciality rent releasing spreads for many shopping centre managers.From an investor perspective, retail property represents an attractive alternative for a growing number of investors, with its low volatility, long anchor lease terms and diversity of tenant base enhancing its defensive qualities. High quality retail assets in strong catchments provide attractive risk-adjusted returns and offer diversification to more cyclical real estate market sectors.